Charles Hudson had recently closed a $66 million fifth fund for his firm, Precursor Ventures, when he received an intriguing request from one of his limited partners. They wanted him to simulate what would have happened had he exited all of his portfolio investments much earlier, at different growth stages such as Series A, B, or C.
This wasn’t just an idle curiosity. After two decades in the industry, Hudson has witnessed a fundamental shift in the expectations around seed investing. Limited partners, previously comfortable with seven-to-eight-year holding periods, now find themselves increasingly anxious about liquidity due to recent stagnation in venture returns and an array of more liquid investment alternatives available elsewhere.
“Seven or eight years feels like a lifetime to LPs right now,” Hudson explains, acknowledging that while this duration has long been the norm, perceptions are rapidly evolving.
When he ran the numbers, the results were illuminating. Selling all his investments at the Series A stage proved ineffective, as the returns from long-term compounding in standout companies far outstripped any gain from early exits. However, the scenario changed dramatically at Series B, revealing that a fund could comfortably achieve three times its capital if fully exited at this stage. Hudson was struck by this strategic insight, calling it “pretty good,” and deeply influencing his portfolio management thinking moving forward.
Hudson, who boasts an extensive investment career spanning 22 years—covering roles at Uncork Capital and In-Q-Tel before founding Precursor—finds himself facing an unprecedented shift as early-stage venture begins taking on attributes traditionally associated with private equity. Investors aiming to deliver interim liquidity rather than patiently awaiting blockbuster outcomes must now incorporate greater sophistication into portfolio management.
The challenges don’t end there. For fund managers like Hudson, increased demand for secondary liquidity comes with difficult trade-offs. Often, the companies commanding the highest secondary interest also represent his strongest growth prospects. “The companies that attract the most secondary buying are precisely the ones where I foresee enormous future potential,” says Hudson. The tension between immediate returns and long-term multiples becomes a careful balancing act.
This shift isn’t limited to Precursor Ventures. Industry-wide, venture capitalists are systematically reevaluating their liquidity strategies. Hans Swildens, founder of Industry Ventures—a firm invested in hundreds of venture firms—noted recently that VC managers now pursue liquidity more strategically, even employing dedicated staff explicitly tasked with manufacturing alternative exit opportunities.
The stakes of this transformation are particularly acute for smaller seed funds like Precursor, which has gained a reputation for backing unconventional founders and ideas—for example, Laura Modi of startup ByHeart, who entered the highly regulated baby formula industry as a first-time solo entrepreneur, and Doktor Gerson of Rad AI, who launched his startup after the failure of a previous venture. Compared to massive funds like Sequoia or General Catalyst, smaller funds must navigate liquidity pressures much more precisely and opportunistically.
Adding to the complexity are broader dynamics reshaping the limited partner landscape. Previously coveted LPs, such as large university endowments, face new pressures resulting from ongoing regulatory inquiries and funding threats, particularly exemplified by Harvard’s high-profile challenges under the Trump administration. Hudson observes that institutional investors continue to believe deeply in venture capital’s power, yet their openness to prolonged illiquidity exposure has notably waned.
The consequence is an increasingly diverse and fragmented base of LP demands. Some investors, seeking more immediate liquidity, might favor early exits, despite potentially leaving long-term gains unrealized. Others, with greater flexibility, prefer holding stakes until ventures reach full maturity and generate maximum potential returns. Navigating these competing expectations is transforming seed-stage investing from a largely intuitive pursuit—in Hudson’s words, “an art”—into something appearing increasingly quantitative and finance-driven.
Despite this trend toward structured decision-making, Hudson remains cautious about overly algorithmic investment strategies. As venture funds grow larger, he sees increasing reliance on specific patterns—founders from particular schools, identified academic backgrounds, or defined companies—which risk overlooking genuinely novel or “weird and wonderful” startups.
“An algorithm might hire efficiently, screening candidates by straightforward criteria,” observes Hudson. “But it also risks ignoring remarkably talented people whose value doesn’t neatly fit within preset parameters.” The nuanced human judgment of seed investing remains, in his view, essential to discovering transformative companies.
As venture evolves into a distinctly more liquid, systematically managed asset class, Hudson remains realistic about these changing market conditions—and cautiously optimistic about uncovering opportunities that remain hidden within the new math of early-stage investing.
